Price and intrinsic value converge over the long term. Remember that everything is just an estimate. You do not want to buy just below the intrinsic value, for it may never reach exactly the calculated intrinsic value. However, if you buy significantly below the intrinsic value, the likelihood of the price going up is very high.
Therefore, we do not suggest any investor buy below eighty percent of this intrinsic value. This serves two purposes: profit over the long term and a margin of safety. Since the price will converge with the intrinsic value over the long term, the price will go up; thus, you will profit. Perhaps more importantly, this excess in value acts as a cushion, or a safety buffer, against any decline in price. The price can decline up to 20% below the intrinsic value before you are losing any value. Therefore, you are protected against most declines in price; and, in the event of a colossal drop in price, the damage to you is minimized.
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